Portland Mortgage Market Update — August 23, 2024

"THE TIME HAS COME FOR POLICY TO ADJUST!" – Fed Chair Powell, today. Sweet sweet music to my ears, Fed Chair Powell spoke today at their annual Jackson Hole Symposium and charted a path forward for the Fed to start lowering their interest rate in their coming meeting, which adjourns on September 18th. Stocks rallied as a result with the Dow (at time of this writing) up 400 points and rates are improving as well after a somewhat choppy week.

But he may be a little late to the party. The minutes from the last fed meeting were released on Wednesday and it said "The vast majority" of officials thought that "if the data continued to come in about as expected, it would be appropriate to ease policy at the next meeting." That same day, the BLS revised its estimate of total employment in March of 2024 downward by 818,000 jobs. That is the biggest downward adjustment in the past 15 years. As I mentioned last week, the Fed has a dual mandate of keeping inflation in check and keeping the labor market strong, so this will definitely be a talking point at the next meeting when discussing how much to drop their interest rate.

So just how much of a rate drop can we expect? The market is currently guessing a 66% chance of a ¼ point cut and 34% chance of a ½ point cut at the next meeting. But ultimately it is going to boil down to the September 6 jobs report. If that comes in weaker or lower than expected, a ½ point cut would be a certainty. A couple things to consider though:

• Since the Dot Com Bust in 2001, every major Fed increase cycle has been broken with a 50 basis point cut • The market is betting on 100 basis point (1 point) in cuts between now and the end of this year and another 125 basis points in cuts next year. That would bring the Fed funds rate from 525-550 down to 300-325 which would still be restrictive in that it is higher than current inflation. So they definitely have room to make some moves!